Hospital administrators feverishly
calculate how long their emergency
power supplies can last.

Supermarkets and other retailers
anticipating one of their biggest
shopping days of the year on that
Monday, December 23, instead wake up
to cold homes and chilling prospects.

Grocery stores with their electricity
cut off are unable to open and product
losses begin to mount. Banks don’t
open. Cash machines are inoperable.

In the colder parts of the United
States, the race to stay warm is on.

Within a day’s time in some poorer
neighborhoods, furniture is broken up
and ignited for kindling.

As a result, fires break out, fires that
in many cases will not draw a response
from firefighting crews due to the
communication breakdown.

As days of interruption turn into
weeks and months, starvation, rioting
and disease take many.

Say good-bye to most of thecommercial property/casualtyinsurance companies that you know.The resulting chaos adds up to moreIn May, 1999, during the NATObombing of the former Yugoslavia,high-ranking Russian officials meetingwith a U.S. delegation to discuss theBalkans conflict raised the notion of anEMP attack that would paralyze theUnited States.

That’s according to a report of a
commission to assess the threat to the
United States from an EMP attack,
which was submitted to the U.S.
Congress in 2004. But Russia is not
alone in this threat or in this capability.

North Korea also has the capability
and the desire, according to experts,
and there is speculation that recent
rocket launches by that country are
dress rehearsals to detonate a nuclear
device in our atmosphere and carry out
an EMP attack on the United States.

The first defense against such anattack is our missile defense. But someexperts believe this country is ill-equippedto defend against this sort of scenario.

“In terms of risk mitigation, if an
event like this happens, then that
means the best risk mitigation we have
has already failed, which would be our
military defense systems, because the
terrorists have already launched their
weapon, and it’s already exploded,”
said Wes Dupont, a vice president and
general counsel with the Allied World
Assurance Company.

The U.S power grid is relatively
unprotected against EMP blasts,
Dupont said.

And a nuclear blast is the worst
that can occur. There isn’t much
mitigation that’s been done because
many methods are unproven, and it’s
expensive, he added.

Lloyd’s and others have studied
coronal mass ejections, solar
superstorms that would produce a
magnetic field that could enter our
atmosphere and wipe out our grid.
Scientists believe that an EMP attack
would carry a force far greater than
any coronal mass ejection that has ever
been measured.

An extended blackout, with some
facilities taking years to return to full
functionality, is a scenario that no
society on earth is ready for.

“Traditional scenarios only assumethe locations that are affected, it couldreally change the marketplace, insurersand reinsurers as well,” said LouGritzo, a vice president and manager ofresearch at FM Global.

Gritzo said key practices to defend
against this type of event are analyzing
supply chains to establish geographically
diverse supplier options and having
back-up systems for vital operations.

The EMP commission of 2004
argued that the U.S. needs to be vigilant
and punish with extreme prejudice
rogue entities that are endeavoring to
obtain the kind of weapon that could be
used in an attack like this.

It also argued that we need to
protect our critical infrastructure,
carry out research to better understand
the effects of such an attack, and
create a systematic recovery plan.
Understanding the condition of critical
infrastructure in the wake of an attack
and being able to communicate it will
be key, the commission argued.

The commission pointed to a
blackout in the Midwest in 2003, in
which key system operators did not
have an alarm system and had little
information on the changing condition
of their assets as the blackout unfolded.

The commission’s point is that we
have the resources to defend against
this scenario. But we must focus on the
gravity of the threat and employ those
resources.

Our interconnected society and
the steady increase in technology
investment only magnify this risk on a
weekly basis.

“Our vulnerability is increasing
daily as our use of and dependence
on electronics continues to grow,” the
EMP commission members wrote
back in 2004.

But “correction is feasible and
well within the nation’s means
and resources to accomplish,” the
commission study authors wrote. &

DAN REYNOLDS is editor-in-chief of
Risk & Insurance®. He can be reached at
dreynolds@lrp.com

blackouts for a few days and losses
seem to be moderate …” wrote
executives with Allianz in a 2011 paper
outlining risk management options for
power blackout risks.

“But if we are considering longer-lasting blackouts, which are most likely
from space weather or coordinated
cyber or terrorist attacks, the impacts
to our society and economy might be
significant,” the Allianz executives wrote.

“Critical infrastructure
such as communication
and transport would be
hampered,” the Allianz
executives wrote.

“The heating and
water supply would stop,
and production processes
and trading would cease.

Emergency services likefire, police or ambulancecould not be called dueto the breakdown of thetelecommunicationssystems. Hospitals wouldonly be able to work as long as theemergency power supply is suppliedwith fuel. Financial trading, cashmachines and supermarkets in turnwould have to close down, whichwould ultimately cause a catastrophicscenario,” according to Allianz.

It would cost tens of billions to
harden utility towers in this country
so that they wouldn’t be rendered
inoperable by ground-induced currents.
That may seem like a lot of money, but
it’s really not when we think about the
trillion dollars or more in damages that
could result from an EMP attack, not to
mention the loss of life.

Allianz estimates that when a
blackout is underway, financial trading
institutions, for example, suffer losses
of more than $6 million an hour;
telecommunications companies lose
about $30,000 per minute, according
to the Allianz analysis.

Insurers, of course, would be
buffeted should a rogue actor pull off
this attack.

Assume widespread catastrophic
transformer damage, long-term
blackouts, lengthy restoration times
and chronic shortages. It will take four
to 10 years for a full recovery.

The crew which launched the naval
surface-to-air missile that resulted in all
of this chaos makes a clean getaway. All
seven that were aboard the Pandawas
Viper make their way to Ensenada,
Mexico, about 85 miles south of San
Diego via high-speed hovercraft.

Those that bankrolled this deadly
trip were Muslim extremists. But this
boat crew knows no religion other
than gold.

Well-paid by their suppliers, they
enjoy several rounds of the finest
tequila Ensenada can offer, and a few
other diversions, before slipping away
to Chile, never to be brought to justice.

OBSERVATIONS: This outcome does
not spring from the realm of fiction.

“If an event like this happens, then thatmeans the best risk mitigation we havehas already failed, which would be ourmilitary defense systems, because theterrorists have already launched theirweapon, and it’s already exploded,”

—Wes Dupont, vice president and general counsel, Allied World
Assurance Company

AP

Losses would quickly become catastrophic in the event of an EMP attack.